The Court of Appeal of the Supreme Court of Western Australia has today handed down its decision on Westpoint promissory notes, ruling against ASIC's contention that the promissory notes were, in fact, debentures.
The Court of Appeal of the Supreme Court of Western Australia has today handed down its decision on Westpoint promissory notes, ruling against ASIC's contention that the promissory notes were, in fact, debentures.
The ruling is a set back for ASIC which wanted the notes deemed to be debentures and therefore subject to the full disclosure provisions of the Corporations Act.
The matter commenced in May 2004, prior to Westpoint going into administration.
Below is the full announcement:
The Court of Appeal of the Supreme Court of Western Australia has handed down its decision today in a case commenced by the Australian Securities and Investments Commission (ASIC) in May 2004 seeking declarations and orders against Emu Brewery Mezzanine Limited (now in liquidation) (Emu Brewery). Emu Brewery was part of the now collapsed Westpoint group.
ASIC appealed the decision of the trial judge, Justice Simmonds, who ruled that promissory notes issued by Emu Brewery with a face value of at least $50,000 were not debentures for the purposes of the Corporations Act.
Emu Brewery appealed Justice Simmonds' finding that the promissory notes gave rise to interests in a managed investment scheme. (The appeal by Emu Brewery was discontinued shortly before the appeal was heard following the winding up of Emu Brewery).
A majority of the Western Australian Court of Appeal today ruled against ASIC's contention that the promissory notes in question were, in fact, debentures.
This means that the provisions of the Corporations Act relating to the issue of debentures, including the requirement for investors to receive a complying disclosure document, and a debenture trust deed and an independent trustee did not apply to the issue of promissory notes by Emu Brewery (and, by extension, other Westpoint companies involved in issuing promissory notes).
'ASIC is mindful of the consequences this ruling may have on the availability of Corporations Act protection for consumers who lend money to companies in return for promissory notes like the ones issued by Westpoint. ASIC is considering the impact and consequences of this decision for investors in Westpoint and for other issuers of promissory notes', said Ms Jan Redfern, ASIC's Executive Director of Enforcement.
Background
ASIC commenced proceedings against Emu Brewery in May 2004 seeking declarations that the offer of promissory notes by Emu Brewery contravened the Corporations Act because the offer should have complied with the debenture requirements of the Corporations Act. These requirements included:
(a) a trust deed giving a trustee rights and obligations for the protection of investors
(b) an independent trustee
(c) a compliant disclosure statement.
ASIC sought consequential orders which would have required Emu Brewery to give investors an opportunity to be repaid funds advanced to Emu Brewery and to comply with these provisions in any future fundraising using promissory notes with a face value of at least $50,000.
In the alternative, ASIC sought declarations that Emu Brewery had contravened the Corporations Act because the promissory notes constituted a managed investment scheme requiring registration with ASIC.
ASIC also argued that the representations made by Emu Brewery in its information memoranda were misleading and deceptive.
On 1 June 2004, the Supreme Court of Western Australia directed certain questions of law to be determined including whether the promissory notes were promissory notes for the purposes of the Bills of Exchange Act 1909 or debentures for the purposes of the Corporations Act and, if not, whether the promissory notes were interests in a managed investment scheme.
Justice Simmonds heard the questions of law on 2 and 3 September 2004 and delivered a ruling on 19 November 2004. His Honour ruled that the promissory notes were not debentures and that the promissory notes gave rise to interests in a managed investment scheme. His Honour did not find the representations in the information memoranda issued by Emu Brewery were misleading or deceptive.
Following this decision, Emu Brewery appealed the decision that the promissory notes were interests in a managed investment scheme and ASIC appealed the ruling that the promissory notes were not debentures.
ASIC also initiated substantial inquiries about the financial position of the Westpoint group which comprised approximately 160 interconnected companies. This investigation led to ASIC initiating action in late 2005 in the Federal Court of Australia against a number of companies in the Westpoint group, including winding up proceedings.
The appeal before the Western Australian Court of Appeal was heard on 20 February 2006. Shortly before that date, the liquidator of Emu Brewery discontinued its appeal.
ASIC's investigation into the affairs of the Westpoint group is continuing.
